Personal Loans vs. Personal Lines of Credit

If you want to borrow money, you are likely considering multiple options. Say you need funds rather quickly and you aren’t willing to take on credit card debt. If that’s the case, looking into personal loans and personal lines of credit is a good first step. Each has benefits, but one could be a better fit for your situation. 

Continue reading to learn more about choosing between a personal loan vs. a personal line of credit. 

What Is a Personal Loan?

A personal loan is money borrowed from a bank or credit union. Typically it is used to fund large expenses like medical bills, home renovations, vacations, or even for debt consolidation or to refinance an existing loan. 

If you don’t have credit to pull from when you need money, you may decide a personal loan is an appropriate way to access funds. Upon approval of your application, your lender will provide immediate funds. Your interest rate and the chance of approval rely on your credit history. Checking your credit report prior to applying is recommended. 

A personal loan is often unsecured. This means that your lender requires no collateral to borrow money. However, if you have poor credit or you don’t meet the qualifications, your lender may ask for you to have a co-signer. If you miss a payment, your co-signer becomes responsible. 

The terms of a personal loan can vary from lender to lender. At San Francisco Federal Credit Union, we offer loan length terms from 61 days to 84 months. Terms are flexible and may vary. Take a look at our low rates and flexible terms. You can opt for a shorter loan term depending on how much you need to borrow and how long you would like to repay it. 

The great thing about personal loans is that same-day approval is often the case when you apply. Money can be granted to you immediately via direct deposit into your credit union account or by check. 

If you take out a personal loan, paying it back is easy. You will receive a monthly statement that looks just like a credit card bill. You can choose to pay online or visit one of our branches to pay in person. 

At San Francisco Federal Credit Union we also offer flexibility, with our skip-a-payment program. If an emergency arises and you can’t make your payment, or you need some extra cash on hand one month, we won’t hold it against you!

What Is a Personal Line of Credit?

A personal line of credit gives you “on demand” access to funds. 

This type of personal financing is typically arranged in advance of needing the money. If you know in the coming months you will need to pay for a vacation, repair a car, or take care of medical bills, for example, a personal line of credit is a great option for you.

Flexibility is one of many perks of a personal line of credit. You can withdraw cash on an as-needed basis, and the money is available whenever you need it for the duration of your draw period.  

Keep in mind that there are risks associated with a personal line of credit. If the terms of your loan include a variable interest rate you may end up with a balloon payment towards the end of your loan term if you only make minimum payments. 

At San Francisco Federal Credit Union, we offer personal lines of credit with low fixed interest rates starting at 7.00% APR* and we don’t charge interest on unused funds. A bonus of opting for a personal line of credit is that the interest you pay may be tax-deductible if you use the money for home improvements. 

Like personal loans, your payments can be made online or in person, it’s up to you!

Personal Loans vs. Personal Lines of Credit: What are The Main Differences?

While both personal loans and personal lines of credit give you access to money when you need it most, some differences between the two are worth careful consideration.

A personal loan provides you with a lump sum of money and requires fixed monthly payments over your loan term. On the other hand, a personal line of credit enables you to withdraw cash as needed and repay it over time. 

Personal loan vs. personal line of credit interest rates vary as well. The interest on a personal loan will often be lower than a line of credit, although both are dependent on your credit score. 

Personal loans are best if you need funds for a one-time expense. A personal line of credit might be a better choice if you need a safety net for unexpected expenses or big purchases and don’t want to dip into your savings or emergency fund. 

Deciding Between a Personal Loan vs. Personal Line of Credit

When deciding which is right for you, it’s important to weigh the pros and cons of personal loans vs. personal lines of credit. Consider your circumstances, like what you need the money for and how long you’d like to take to repay it. 

Have you already decided that a personal loan is best for your situation? Click below to learn where to get started!

*Annual Percentage Rates. For all loans, the actual annual percentage rate is determined at the time a credit decision is rendered and may be higher than the lowest rates available. Credit history, loan terms, and the amount borrowed are all factors that determine the rate. Not all borrowers will qualify for the lowest rate. There are NEVER any prepayment penalties for repaying your loan early. All loans are subject to credit approval. As of the date of this disclosure, the Prime Rate is 3.25%.